GLD Analysis

Update 1/15/2016: I took advantage of an upward retracement of GLD to exit the diagonal entirely for a small loss. 

I exited the long leg for $5.55, a 44.8% loss on debit.

Shares declined by 5% over 136 days, or a -13.4% annual rate. The options -- both the long leg and the short legs -- produced a -1.6% loss on debit for a -4% annual rate.

Here is a summary of all short legs on this position:

GLD	diagonal, short leg
option	credit	debit	profit	yield	entry	exit	days
-c110oct	1.55	-0.72	0.83	115.3%	9/25/2015	9/29/2015	4
-c109nov	1.70	-0.68	1.02	150.0%	9/30/2015	11/3/2015	34
-c108dec1	1.39	-0.48	0.91	189.6%	11/3/2015	11/6/2015	3
-c105dec	1.84	-0.92	0.92	100.0%	11/6/2015	11/18/2015	12
-c103dec5	1.93	-0.92	1.01	109.8%	11/18/2015	12/2/2015	14
-c102jan	1.69	-0.85	0.84	98.8%	12/2/2015	12/31/2015	29
-c102feb	1.90	-3.20	0.84	26.3%	12/31/2015	1/15/2016	15
-----------	-----------	-----------	-----------	-----------	-----------	-----------	-----------
Status:	12.00	-7.77	4.23	54.4%			111
option description key: long/short, call/put, strike, series

---

The exchange-traded fund SPDR Gold Trust (GLD), which tracks the price of bullion, closed above its 20-day price channel on Thursday, sending a bull signal with low historical odds of success, suggesting a non-directional trade.

[GLD in Wikipedia]

GLD

Odds

GLD has completed five bull signals in the past year. Only one was successful, yielding 0.1% over 25 days. The four unsuccessful signals on average each lost 2.8% over 20 days. The success rate is 20%.

Ranges

Click on chart to enlarge.

GLD at 10:55 a.m. New York time, 30 days hourly bars

Implied volatility stands at 17.7%, which is 8/10ths of the VIX, a measure of volatility of the S&P 500 index. GLD’s volatility stands in the 37th percentile of its annual range.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	114.31	118.96	112.12	N/A
Lower	105.01	100.36	105.27	N/A
Gain/loss	4.2%	%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

A bull signal with implied volatility in a low percentile suggests a covered call as the best vehicle for trading GLD.

I shall use the LEAPs variant for the covered call, which uses long call options expiring a year or more out instead of long shares. This greatly reduces the overall cost of the position. I shall use the JAN 17 series of options, expiring Jan. 21, 2017, for the long leg of the position.

For the long leg, I used the $109 JAN 2017 call, with a $10.06 premium per contract.

For the short leg,

Call, short the $110 calls,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money

OCT	Strike	OTM
	110	54.7%

The premium is $1.42. The stock at the time of purchase was priced at $109.57.

Decision for My Account

I've opened a covered call LEAPs variant on GLD as escribed above.

-- Tim Bovee, Portland, Oregon, Sept. 25, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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